22.11 2022

How are employees’ standard working hours calculated in your organisation?

Effective planning of work, especially in the case of work based on schedules, with the aim of increasing productive working time, is an indisputable prerequisite of a successful human resource policy. However, effective planning of work requires the ability to predict workflow – the more accurate the forecast and the corresponding schedules, the better for both the employer and employee. Yet, in addition to the accurate forecasting of workflow, there is another aspect that employers should pay attention to in terms of efficiency in the case of summarised working time. This is the calculation of the employees’ standard working hours, more specifically the calculation methods used to determine the standard working hours on which employees’ remuneration is based.

Various calculation methods to determine standard working hours

Although Estonian laws do not provide clear instructions on how to calculate the number of standard working hours of employees, clear guidelines have been developed over time by human resource teams. Therefore, every HR employee knows the simple and logical formula that if an employee is unexpectedly absent on the working days allocated to them in the work time schedule, the working hours determined in the schedule for the period of the employee’s sick leave or holiday are deducted from their standard working hours. However, the situation is much more confusing in cases where a planned absence that is already known is marked in the work time schedule. Various approaches may be encountered in the search for a suitable calculation method in the case of such absence. Based on the instructions available online today, it mostly appears that, in the case of planned absences, the working hours of calendar working days (i.e. from Monday to Friday) falling within the period of sick leave or holiday must be deducted from the employee’s standard working hours in the corresponding month. For example, if an employee works full-time and is absent on two calendar working days, such as Thursday and Friday, then two working days x eight hours = 16 working hours must be deducted from the standard working hours. This means that there is no reduction in standard working hours if the absence is planned on a weekend. At the same time, different approaches can be found in court decisions and in practice. For instance, in one dispute, the court found that, when granting leave calculated in calendar days, it is only possible to deduct working hours from the standard working hours in a month to the extent they correspond to the average number of working hours on all calendar days in that month multiplied by the number of days of leave taken. So, for example, if an employee takes seven days off in January 2022, the standard hours are reduced by 168/31*7=37.9 hours. Although the Civil Service Act was applied in the judgment referred to, this difference does not appear to be sufficient to justify a different method of calculation.

Financial impact of implementing various calculation methods

Although, in practice, there is no clear understanding today of which of the above calculation methods is the right one and why, the choice of calculation methods can hide important financial implications. The financial impact of the choice of method for calculating the number of standard working hours is most noticeable for employers with a large number of employees working on the basis of a schedule.

In order to compare the financial impact of implementing various calculation methods, KPMG has developed an algorithm to analyse the standard working hours on the basis of which remuneration is paid. The algorithm is a practical tool that can work with data sets that concern a company’s employees and work schedules. The impact of various calculation methods is the most explicit when the alternatives reflect the work schedules of the whole company over a longer period of time, and it is good if all shift workers are included. The financial year is the ideal measurement period. It allows you to implement alternatives along with their financial implications.

The following is required:

  • a description of the principles of the alternative(s), one example of which could be the methods for calculating planned leave described above;
  • a more detailed description of rules for all specific situations among the alternatives – how to calculate the working time of shift workers and the cost of working time;
  • a risk assessment concerning the compliance of rules and agreements with at least national regulation, existing contracts (or whether they require amendments to these), good practice and the company’s human resources policy;
  • a structured data set with employees’ past work time schedules and hours worked – to understand absences, workload intensity, employee mobility and other factors specific to the organisation;
  • employee payroll data and identifiers, preferably with an anonymisation solution (personal data!), depending on the environment

Andmete kogumise järel jooksutatakse need alternatiivseid lähenemisi arvesse võttes läbi reeglitel põhineva algoritmi (rule based algoritm) ja genereeritakse tulemid, mis kajastavad alternatiivsete arvutumeetodite kasutamise mõjusid finantsaastale.

Results and risks

Based on the above, our aim is to offer organisations that work on the basis of schedules the opportunity to compare the financial impact of alternative calculation methods and to consider adjustments to current solutions, where necessary (data driven decision).

The approach described is not yet model-based optimisation, but is the next best step to Excel spreadsheets, which usually do not lead to the achievement of optimisation goals. To achieve primary efficiency, the algorithmic optimisation described above would be the most convenient first step that can provide answers with respect to the pros and cons of various calculation methods.

Although there are still different approaches and contradictory guidelines in the practice of calculating employees’ standard working hours, the Employment Contracts Act also contains a number of other regulations on summarised working time from which the employer may not deviate. For this reason, we recommend that you make sure to consult a human resources specialist or an expert in emloyment law before establishing, reviewing or changing rules concerning working time calculation

Liisi Kents
Advokaadibüroo KPMG Law OÜ

Raul Nugis
Lead Data Scientist at KPMG Lighthouse Estonia
KPMG Baltics OÜ

Liisi Kents

+372 667 6805

Raul Nugis

Lead Data Scientist at KPMG Lighthouse Estonia
+372 5635 8175

Draft act on protection of whistleblowers puts an extra burden on businesses

The draft law, which was recently adopted by the Riigikogu for first reading, significantly reduce..

Article 30.10 2023

KPMG global ESG survey: ESG is becoming an impactful element in transactions

The inclusion of environmental, social and governance (ESG) due diligence into the process of buyi..

Article 10.07 2023

The Legal 500: KPMG Law is among the finest law firms

In the new 2023 edition of the prestigious international legal directory The Legal 500, KPMG Law a..

Article The Legal 500 23.05 2023

State starts to assess the reliability of foreign investments in Estonia

In January 2023, the Riigikogu adopted the Foreign Investment Reliability Assessment Act (FIRAA), ..

Article 27.04 2023

Impact of DORA Regulation on legal and IT departments

With the increasing digitalisation of the financial sector, more and more attention is paid to th..

Article 26.04 2023

Changes in the Occupational Health and Safety Act

Amendments to the Occupational Health and Safety Act entered into force on 19 November 2022. The o..

Article 11.12 2022
We are committed to high-level strategic legal assistance in the Baltics, Scandinavia and globally.

Advokaadibüroo KPMG Law OÜ

+372 6676 805
Ahtri 4, 10151 Tallinn, Estonia
Email again: